from the the-patent-system-is-so-damn-broken dept

We've written a bunch over the past few years about the so-called Inter Partes Review (IPR) process at the US Patent Office. In short, this is a process that was implemented in the patent reform bill back in 2010 allowing people and companies to ask a special "review board" -- the Patent Trial and Appeal Board (PTAB) -- at the Patent Office to review a patent to determine if it was valid. This was necessary because so many absolutely terrible patents were being granted, and then being used to shake down tons of companies and hold entire industries hostage. So, rather than fix the patent review process, Congress created an interesting work-around: at least make it easier for the Patent Office to go back and check to see if it got it right the first time.

Last year, part of this process was challenged at the Supreme Court and upheld as valid. However, the whole IPR is still very much under attack. There's another big Supreme Court case on the docket right now which argues that IPR is unconstitutional (the short argument is that you can already challenge patents in court, and by taking them to an administrative board, it creates an unconstitutional taking of property without a jury). There are also some attempts at killing the IPR in Congress.

While those play out, however, never underestimate the ability of sketchy lawyers to find loopholes and dive through them in ways that are clearly sticking a giant middle finger up at the law. Such is the case with the pharmaceutical company Allergan, who just "sold" some of its patents for the dry-eye drug Restasis to the St. Regis Mohawk Tribe based in upstate New York. There are currently challenges against the Restasis patents both in court and via the IPR at the PTAB -- and the PTAB has indicated that Allergan is likely to lose its patents. But Allergan has basically short circuited the process just days before the PTAB was set to hear arguments over the patent, and will now tell the PTAB it can't review these patents because of (no joke) the sovereign immunity of the Mohawk tribe.

The reasoning goes back, first, to a ruling at the beginning of this year where the PTAB dismissed some reviews of patents held by the University of Florida after the University -- a part of the state of Florida -- made a claim of sovereign immunity, saying it's exempted under the 11th Amendment of the Constitution. While there are some arguments against this, the PTAB agreed. The lawyers representing the University of Florida in this case apparently saw this as an opportunity. They're the same lawyers representing Allergan in this "sale."

Of course, it's a sale in name only. The only reason for the sale is to be able to avoid the IPR process. In all other ways, Allergan appears to retain control. From the NY Times article on the deal:

Under the deal, which involves the dry-eye drug Restasis, Allergan will pay the tribe $13.75 million. In exchange, the tribe will claim sovereign immunity as grounds to dismiss a patent challenge through a unit of the United States Patent and Trademark Office. The tribe will lease the patents back to Allergan, and will receive $15 million in annual royalties as long as the patents remain valid.

So, yeah. This is an insanely blatant attempt at avoiding a process put in place under the law, and where this pharmaceutical company is basically paying off a Native American tribe for the right to avoid a process that might invalidate some patents. As a side note, the tribe's quote on this to the NY Times is pretty ridiculous:

“The tribe has many unmet needs,” Dale White, the tribe’s general counsel, said in an interview. “We want to be self-reliant.”

Being "self-reliant" means doing something of actual value yourself. It doesn't mean abusing an already questionable loophole in patent law to help giant pharma companies keep their dubious patents and limit the ability of more affordable medicine to get on the market. And, of course, lots of people are predicting that there will be more deals like this in the near future.

Either way this is a big deal. Law professor Rachel Sachs has already pointed out that this could go way beyond just the IPR process and could impact claims in federal court as well. And you can be sure that if that's true it will be exploited. There is no "legitimate" reason for this patent sale and license-back other than to avoid having the patent reviewed. It's a sickeningly blatant attempt to avoid the law and to keep a patent from possible invalidation. Even those who support the patent system should be concerned when obvious games like this are played to abuse the system. It doesn't make the system look any stronger. It just shows how desperate some companies are to avoid having their patents looked at closely.

Of course, there is some more history on this issue going back quite a while. Almost exactly 10 years ago, we wrote about the ridiculousness of letting state universities claim sovereign immunity to avoid being sued for patent infringement (even while asserting patents against other entities). And, back in 2011, we saw a similar issue pop up with a Native American nation (in that case, the Quapaw Tribe in Oklahoma) able to have a patent infringement case dropped entirely by using sovereign immunity. At the time, we wondered if this might enable a creation of patent-free autonomous zones -- but that didn't really happen. Instead, we get something much, much worse: patent holding giants totally abusing the system to make sure that bad patents can be used to inflate prices and limit competition, even in the field of important life-saving drugs.

Re: issue

Limit the exception

Only patents filed by tribes. Anything sold to them should be prosecutible to the original filer... That way they can then go back and prosecute someone that sold them an invalid patent. After all, the university patents were filed by the university.

Forseen consequences are not unintended.

> The only reason for the sale is to be able to avoid the IPR process.

I mean, you say this but they're actually following the process as written. There's no scam here, everything is perfectly aboveboard and completely legal.

You may not like how the process was written - but the fault there lies with the legislators who wrote it and the governments who came up with the idea of 'sovereign immunity', not the company that's simply using the law-as-written to achieve its otherwise legal goals.

The problem here is not the company. Its the government that can't run its patent shop and the government that can't write consistent law to save its life.

Re: Forseen consequences are not unintended.

Um no. They are not following any process. They are introducing a novel legal loophole in an attempt to short circuit a process. Also, courts have a very dim view of people attempting to hide in this way; for instance, selling off all of your assets for 1 dollar before a divorce decree is finalized. Try that trick and see what it gets you.

Not every loophole needs to be exploited, but this issue before us certainly highlights the inherent amorality of our business-first economy/culture. Corporations are simply greed machines, with the only goal being the accumulation of wealth, with little thought for laws and rules except where they can be obviously caught.

Plenty of blame to go around

I must say, your view of legislators is an impressive one, where they apparently foresaw that a patent troll would 'sell' off their patents to a third party in an attempt to dodge a process they don't like and deliberately wrote the law allowing that.

Even taking your argument at face value the company is still at fault for using/abusing it in a blatant attempt to avoid a legal result they don't like.

If lawmakers wrote up a law where one of the side-effects allowed anyone to walk into your house and grab anything that caught their eye would you likewise say of the looters, 'Hey, it's not their fault for choosing to take my stuff, they're just following the process as written.'?

Just because the law may allow what they are doing does't mean they are any less to blame for blatantly trying to game the system using it.

Re: Plenty of blame to go around

The company is not 'at fault' for doing something completely legal - its just not liked.

But seriously here - everytime there's a 'loophole' that's what people 'exploit'. That's the nature of people. They are amazing at doing *exactly* what you tell them to do and still finding ways to do what they want through the incompletness of your orders.

And its not like Sovereign Immunity is some obscure bit of legal trivia - the USG has used it *many many many* times recently to simply blow off legal assaults.

Hell, these guys could have sold it to a foreign government too and gotten the same result. They could even had sold it to the Federal government itself and gotten the protections.

Re: Re: Plenty of blame to go around

Yes, they are.

Just because the law may or may not provide the opportunity for something like this, does not mean they are forced to use it. They chose to engage in a sham 'sale' in order to avoid a lawsuit that stands to void their patents, and as such they are absolutely at fault and/or responsible for doing so.

As I noted in the hypothetical example above, just because the law might allow something it does not absolve those who make use of it of the responsibility or blame for doing so.

Wouldn't a tribe or state university preventing me from manufacturing a product represent an unlawful taking by the state? After all it is merely an administrative body representing the citizenship, not an independent entity.

Also does the sovereign government of the Mohawk tribe have a concept of patent law within their governing documents, if not have they just taken money to provide something worthless to Allergan as the patent would dissolve into a worthless idea with out governing law giving it monopoly status?

Re: The magic words

Allergan invoked the magic words "Intellectual property," upon which the Mohawk tribe's representatives believed they had died and gone to Diagon Alley. Why? Because this magical property doesn't require any maintenance or the taking of responsibility for it bar the regular collection of rents. They were transmogrified thereby into rentiers, able to say "Get off my land!" with regard to the "property." That's what makes it so attractive to them and that's why they described it as "Self-sufficiency."

And that is why I'm so opposed to the use of the term "Intellectual property" without the scare quotes. THIS is the problem it causes.

I think the dodge may backfire on them. While Allergan may have sold the patent to the tribe, they didn't do anything that made the patent not be issued by the US PTO. The challenge to the patent would still be being made with the US PTO, under US law and in US courts where it's the US government and not the tribal government that's sovereign. So now it'll be the tribe having to defend the patent without any expertise in the matter, and the PTAB may refuse to allow Allergan to intervene and help the tribe since they're no longer a party to the review.

Re:

Exactly. When they try to defend patent infringement, where is that going to take place? In tribal courts? I doubt it. And, if it was, what is a tribal court going to do to defend potential patent infringement outside of its tribal land?

I understand why first nations have sovereignty, but it's being used today in ways that more resemble virtual reparations. I would rather just pay reparations one time and then normalize laws between the first nations and the rest of the country.

Re:

One could at least give them back the money "held in trust" by the government, and stop violating their lands.

It's entirely stupid, but i can easily see how first nations would not give a crap about effects outside their world from the the occasional ways they can game the system to actually get something out of it.

They also have a very serious problem with disenrollment, another issue created entirely by the interface between first nations and their colonial overlords. I could see that issue easily playing into problems like this patent-immunizing scheme.

Self-reliancy

Being "self-reliant" means doing something of actual value yourself.

No, it doesn't. It just means you don't need to rely on other people. (Raising the question of why you'd need the currency of an external party...) And with $13 million there's less need to do anything of value.

Re:

International Loopholes

Does anyone know if there are any loopholes in international law that would prevent the sovereign Mohawk nation from persuing patent infringers in other countries? Possibly along the lines of "you don't have standing here because we don't recognize you as another nation, or we don't accept lawsuits from sovereign nations against our citizens/corporations". It would be great for these 'patent holders' to lose all rights internationally as a result of being too greedy at home. Hopefully some smart lawyers will figure it out.

Generic and other manufacturers can talk to the tribe and offer them additional money (less than 15m/year) to also license the patents. This will allow competition and reduce the cost of the drug well below what Allergan charges.

Not sure if this can/will happen and its not a perfect solution, but its better than high priced monopoly drugs.

It is fine if you wish to transfer your patents out of the country. However, the sad fact is that the United States does not have a patent agreement with your chosen party. Therefore, your patent rights are no longer recognized and your product is no longer protected under the US patent laws.